DIAMOND: A crisis of confidence

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By Harris Diamond

OP-ED:

"What we've got here is failure to communicate." The immortal line from the movie "Cool Hand Luke" is especially apt these days.

The systemic failures plaguing our banking and financial system are real and have caused genuine pain to millions of Americans. But the problems have likely been made worse by the public's reaction, or overreaction, to the systematic failure of our nation's political and financial leaders to communicate effectively with us since the crisis began.

At every step along the way, we have been told that the most recent government initiative taken to resolve the problem was sufficient and would be successful. And, within a matter of days or weeks, the claim was proven wrong. As a result, the banking crisis has morphed into a crisis of confidence in our leaders, our institutions and, in no small measure, in the free market system itself.

There are many rules to follow in the practice of crisis communications, but two are inviolate: when in crisis, communicate; and don't do anything to undermine your credibility. The people who run our government and financial institutions have violated both.

In a crisis, there needs to be real leadership. No one expects their leaders to have all the answers. Indeed, they may have none, but they need to be visible and accountable. On the day he first addressed Parliament as Prime Minister of Great Britain during the dark days of May 1940, Winston Churchill told his people he had "nothing to offer but blood, toil, tears and sweat." What leaders must have is a vision for how the crisis will end; what they must display is conviction that they can translate the vision into reality; and what they must do is hold fast to their most important asset, their credibility.

Now consider our current leaders. After months of seeking to calm the markets and the public by misleadingly stating that all was well, President Bush, with a 24 percent approval rating, was barely visible as the recent $700 billion rescue package was put together. In fact, the initial negotiations were conducted on Capitol Hill, instead of the White House, a matter that did not go unnoticed among those who read tea leaves about presidential authority.

Treasury Secretary Paulson, for all his skill in quickly coming up with the package, created a massive speed bump to a Congressional passage and public acceptance by not realizing that in speaking about the problems of investment banks, he encouraged most citizens to think Wall Street and not Main Street. And while some Members of Congress, like Reps. Barney Frank and Spencer Bacchus, appeared to be genuinely interested in progress and action, more than a few seemed to view the crisis as an opportunity to score partisan points against their political adversaries.

Federal Reserve Chairman Ben Bernanke, whose expertise is the Great Depression, would seem to be well positioned for a visible public role. But he has receded from public view of late, perhaps out of a mistaken desire to remain above the politics that have surrounded the rescue package and to preserve the independence of the Fed. While this is an important institutional imperative, the reality is the silence from our current political leaders is unhelpful.

As for the individuals who have run our financial institutions, those who have been discredited speak in defense of the past, and those who are prospering talk mostly about what's in it for them instead of what's in it for us. Unraveling the mistakes of the past is an important exercise, but finger pointing is less important than pointing the way toward a financial system we can all trust.

At a time when the nation is crying out for knowledgeable, calm and credible voices of reason, there is a void of leadership. No one with visibility, credibility and impartiality has stepped forward to explain the situation and offer plausible reassurances of how, or when, it will end.

This isn't 1929. (I hope.) Unlike the response to the market crash 79 Octobers ago, significant steps are being taken to provide liquidity to the market and prevent an expected recession from becoming a depression.

But in this presidential election year, its stunning that when most Americans are screaming for leadership there's no one out there reminding everyone that the "only thing we have to fear is fear itself."

HarrisDiamond ischief executive officer of Weber Shandwick Worldwide, the world's leading public relations firm.